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Sales price model – contribution ratio

Sales pricing is a complex process to work out what you can sell a product for to recover your variable and fixed costs. You will have to do this analysis with the help of data from AX but there is external data like market analysis that will go into setting a price.

One strategy is determining a contribution margin that you want a product to provide which will contribute to cover the fixed costs of the operations. Once you have determined what the ratio is you can set this in AX if you use the sales price model set to contribution ratio. You can ether calculate off the purchase price or cost price to determine the sales price.

AX calculates the sales price using the contribution ratio as

(cost price * 100) / (100 – contribution ratio)

If you do use AX to calculate you need to factor in that the price might not calculate to a psychological price point meaning that it is a pure calculation. Say for example a price of $1.03. Now is it better to take a hit on the contribution margin and set the price at 99cents as people might purchase more at that price point.

The point is that while AX can calculate the base sales price via this method it will have to be washed against your sales and marketing strategy.

One other point to note that this is the base sales price. If you are going to have trade agreements to set different prices for different customers. Then one strategy is to keep the calculation of the base sales price as a contribution ratio and the you could do some analysis of the variance on the customer specific pricing to the base sales price.